IAS 16 Revaluation, Derecognition and Disclosure of Property, Plant and Equipment

After an asset is recognised, an entity must decide how to carry it. This topic covers the revaluation model in International Accounting Standard (IAS) 16 Property, Plant and Equipment: how gains and losses are recorded, how a revalued asset is depreciated, and how the revaluation surplus is released. It then covers derecognition, including gains and losses on disposal and part-exchange, and the disclosures required in the notes. The next topic covers government grants and government assistance.

The measurement models, the revaluation entries and disposals are examined every sitting. In the diets reviewed for this page, part (b) of Question 7 in November Diet, 2021 and in May Diet, 2023 each carried 5 marks on IAS 16. Read recognition, cost and depreciation of property, plant and equipment first.

The two models

IAS 16 lets an entity choose one of two models as its accounting policy for each class of PPE after recognition.

• Cost model: cost less accumulated depreciation and accumulated impairment losses.
• Revaluation model: the revalued amount, which is the fair value at the date of revaluation, less subsequent accumulated depreciation and accumulated impairment losses.

The model is applied to the whole class. A company might carry all its motor vehicles at cost and revalue all its land and buildings, but it cannot carry one vehicle at cost and revalue another. Revaluations must be made often enough that the carrying amount does not differ materially from the amount fair value would give at the end of the reporting period.

The frequency depends on how volatile the values are. Assets with large swings may need annual revaluation, while assets with small changes may be revalued only every three or five years.

Accounting for a revaluation

When an asset is revalued, its carrying amount moves to its fair value at that date. The other side of the entry depends on whether the value goes up or down, and on what has happened to the asset before.

Increases and decreases

• Asset carried at cost, revalued upwards. The increase is credited to other comprehensive income and accumulated in equity under the revaluation surplus. Land bought for ₦100 and revalued to ₦130: Dr Land ₦30, Cr OCI (revaluation surplus) ₦30.
• Asset carried at cost, revalued downwards. The decrease is an expense in profit or loss. Land bought for ₦100 and revalued to ₦90: Dr Profit or loss ₦10, Cr Land ₦10.
• Asset previously written down, revalued upwards. The increase is recognised in profit or loss to the extent it reverses the earlier expense. Any excess is recognised in OCI.
• Asset previously revalued upwards, revalued downwards. The decrease is recognised in OCI to the extent of the surplus already held for that asset. Any excess is an expense in profit or loss.

A worked series shows all four. A plot of land is bought for ₦100 on the first day of 20X6 and revalued each year end.

In 20X8 the fall of 15 is covered by a surplus of only 10, so the other 5 is an expense. In 20X9 the rise of 21 first reverses the 5 expense, and only the remaining 16 goes to OCI.

Revaluing a depreciable asset

The carrying amount of a depreciable asset sits in two accounts, cost and accumulated depreciation, so the entries must deal with both. IAS 16 allows two ways to treat the accumulated depreciation at the date of revaluation.

• Method 1: restate proportionately. Cost and accumulated depreciation are both restated by the same factor, so the carrying amount equals the revalued amount. An asset with cost ₦25m and accumulated depreciation ₦5m has a carrying amount of ₦20m.
  Revalued to ₦26m, the factor is 26 ÷ 20 = 1.3.
  Cost becomes ₦32.5m and accumulated depreciation ₦6.5m.
  Dr Asset ₦7.5m, Cr Accumulated depreciation ₦1.5m, Cr Revaluation surplus ₦6m.
• Method 2: eliminate against cost. The accumulated depreciation is transferred to the asset account, so the asset account shows the carrying amount, and then the asset is adjusted to the revalued amount. Dr Accumulated depreciation ₦5m, Cr Asset ₦5m; then Dr Asset ₦6m, Cr Revaluation surplus ₦6m. As a single entry: Dr Asset ₦1m, Dr Accumulated depreciation ₦5m, Cr Revaluation surplus ₦6m.

In both methods the surplus is the revalued amount less the old carrying amount. A building bought four years ago for ₦3,000,000, with accumulated depreciation of ₦100,000, is revalued to ₦4,000,000. The surplus is ₦4,000,000 − (₦3,000,000 − ₦100,000) = ₦1,100,000, credited to OCI and the revaluation surplus. The accumulated depreciation of ₦100,000 is cleared, so the building account closes at ₦4,000,000.

Depreciating a revalued asset

After a revaluation, depreciation is calculated on the new valuation, over the remaining useful life, using the revised residual value. An asset bought three years ago for ₦100,000, with a six-year life and a residual value of ₦10,000, was depreciated at (₦100,000 − ₦10,000) ÷ 6 = ₦15,000 a year. It now has a carrying amount of ₦100,000 − 3 × ₦15,000 = ₦55,000. It is revalued to ₦120,000, with a remaining life of three years and a residual value of ₦15,000.

The surplus in OCI is ₦120,000 − ₦55,000 = ₦65,000. Year 4 depreciation is (₦120,000 − ₦15,000) ÷ 3 = ₦35,000, and the carrying amount at the end of Year 4 is ₦120,000 − ₦35,000 = ₦85,000.

Releasing the revaluation surplus

Every asset leaves the statement of financial position eventually, either by being fully depreciated or by sale. If nothing were done, a surplus relating to an asset no longer held would stay in equity. IAS 16 allows, but does not require, the surplus to be transferred to retained earnings when the asset is realised. This may happen as the asset is depreciated or when it is sold.

• Depreciated assets. The depreciation on a revalued amount exceeds the depreciation on historical cost. The difference is excess depreciation (also called incremental depreciation). Each year an entity may transfer an amount equal to it: Dr Revaluation surplus, Cr Retained earnings. This transfer does not go through profit or loss or OCI.
• Assets sold. When a revalued asset is sold, the surplus held for it may be transferred to retained earnings with the same entry.

Derecognition and disposal

PPE is derecognised on disposal, by sale or, if it has no sale value, by scrapping. A disposal can happen at any time, not only at the end of the asset’s expected life. The gain or loss on disposal is:

The gain or loss goes to profit or loss.

In the ledger, a disposal account is used in five steps:

• (1) transfer the cost to the disposal account (Dr Disposal, Cr Asset)
• (2) transfer the accumulated depreciation (Dr Accumulated depreciation, Cr Disposal)
• (3) record the disposal costs (Dr Disposal, Cr Bank)
• (4) record the proceeds (Dr Bank or Receivables, Cr Disposal)
• (5) transfer the balance on the account, the gain or loss, to profit or loss

Asset accounts are usually kept by category, so after a disposal a balance remains on the asset and accumulated depreciation accounts for the assets still held.

Part-exchange

When a supplier takes an old asset in part-exchange for a new one, the disposal is accounted for as for a cash sale, except that the proceeds are the amount the supplier allows for the old asset. The new asset is recorded at its full price, with the double entry partly to bank or payables for the cash paid and partly to the disposal account for the part-exchange value.

Disposal of a revalued asset

The carrying amount used is the revalued carrying amount. The gain or loss is calculated the same way, and any revaluation surplus left for the asset may be transferred to retained earnings.

Disclosure in the notes

For each major class of PPE, the notes disclose:

• the measurement bases used (cost or revaluation);
• the depreciation methods;
• the useful lives or depreciation rates;
• the gross carrying amount and accumulated depreciation at the start and end of the period; and
• a reconciliation of the opening and closing gross carrying amounts and accumulated depreciation, showing additions, disposals, depreciation, assets classified as held for sale under International Financial Reporting Standard (IFRS) 5, acquisitions through business combinations, impairment losses and the effect of revaluations.

A note might read, in ₦ million:

• property cost at the start ₦7,200, additions ₦920, disposals ₦(260), cost at the end ₦7,860
• plant cost at the start ₦2,100, additions ₦340, disposals ₦(170), cost at the end ₦2,270
• accumulated depreciation for property of ₦800 at the start plus a charge of ₦120 less ₦55 on disposals gives ₦865 at the end, and for plant ₦1,100 plus ₦250 less ₦130 gives ₦1,220

The carrying amounts at the end are ₦6,995 for property and ₦1,050 for plant.

Accounting policy note

Property, plant and equipment often carries the largest numbers in the statement of financial position, so the policy note matters. It should cover the depreciation policy (the useful lives of categories of assets, residual values and the method) and the policy for measurement after recognition (whether any class is revalued, how classes are identified, how often revaluations are done and how the carrying amount is adjusted).

A typical policy note says that land and buildings are shown at fair value less accumulated depreciation, that valuations are done often enough to avoid material difference, that increases go to OCI and the revaluation surplus, that decreases offsetting earlier increases are charged to the surplus and the rest to profit or loss, that accumulated depreciation at revaluation is eliminated against the gross amount, and that the excess depreciation is transferred to retained earnings each year.

Freehold land is not depreciated, and other PPE is carried at historical cost less accumulated depreciation and impairment.

The ideas in more depth

A worked release of the surplus

Suppose an asset cost ₦500,000 with a 10-year life and no residual value. After two years the carrying amount is ₦400,000. It is revalued to ₦640,000 with eight years left. The surplus is ₦240,000. Depreciation on the new amount is ₦640,000 ÷ 8 = ₦80,000 a year, compared with ₦50,000 on historical cost, so the excess depreciation is ₦30,000. Transferring ₦30,000 a year for eight years releases ₦240,000, which is the whole surplus.

Why a decrease can reach profit or loss

A surplus belongs to the asset that produced it. If an asset falls in value by more than the surplus held for that asset, the excess is a real loss in value, so it is an expense. Surpluses on one asset cannot absorb a fall on another asset.

Sources and references

• IAS 16 Property, Plant and Equipment: measurement after recognition, revaluation model, depreciation, derecognition and disclosure.
• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, for the disclosure cross-reference.

These points are stated as at 5 November 2026.

Worked examples

1. (a) Net disposal value.
   ₦18,000 − ₦500 = ₦17,500.
2. (a) Carrying amount.
   ₦75,000 − ₦51,000 = ₦24,000.
   Loss = ₦17,500 − ₦24,000 = ₦6,500 loss.
3. (b) Net disposal value.
   ₦53,000 − ₦2,000 = ₦51,000.
4. (b) Carrying amount.
   ₦82,000 − ₦42,000 = ₦40,000.
   Gain = ₦51,000 − ₦40,000 = ₦11,000 gain.

1. Carrying amount.
   ₦30,000 − ₦25,000 = ₦5,000.
2. Gain or loss.
   Proceeds (part-exchange value) ₦4,000 − ₦5,000 = ₦1,000 loss.
3. Cash paid.
   ₦50,000 − ₦4,000 = ₦46,000.
4. Motor vehicles cost.
   ₦200,000 − ₦30,000 + ₦50,000 = ₦220,000.
5. Accumulated depreciation.
   ₦80,000 − ₦25,000 = ₦55,000.

1. Old depreciation.
   (₦100,000 − ₦10,000) ÷ 6 = ₦15,000 a year
   three years = ₦45,000.
2. Carrying amount before revaluation.
   ₦100,000 − ₦45,000 = ₦55,000.
3. OCI.
   ₦120,000 − ₦55,000 = ₦65,000.
4. Year 4 charge.
   (₦120,000 − ₦15,000) ÷ 3 = ₦35,000.
5. Carrying amount at the end of Year 4.
   ₦120,000 − ₦35,000 = ₦85,000.

How to answer in the exam

• Explain the models. Name both, define each in one sentence, and add that the choice applies to a class. A 5-mark question wants both models plus the treatment of gains and losses.
• Show revaluation entries. State the debit and credit, and say where the other side goes. Track the surplus held for each asset, because a later fall uses it first.
• Calculate disposals. Use the layout: proceeds, less costs, less carrying amount. Label gain or loss.
• Notes. List the bases, methods, lives and the reconciliation, and give one line on each.

Common mistakes in the exam

• Taking a revaluation gain to profit or loss when there is no earlier loss on that asset.
• Ignoring the surplus already held when an asset falls in value.
• Depreciating a revalued asset on the old cost instead of the revalued amount.
• Revaluing one asset only. The model applies to the whole class.
• Using proceeds without deducting disposal costs, or comparing proceeds with cost instead of carrying amount.
• Treating the transfer of excess depreciation as a profit or loss item. It moves within equity.

Quick revision

• Models: cost or revaluation, by class. Revalue often enough to avoid material difference from fair value.
• Increase: OCI and surplus (except reversal of earlier loss on the same asset). Decrease: profit or loss (except reversal of surplus).
• Depreciable assets: restate proportionately, or eliminate accumulated depreciation against cost.
• Depreciate the revalued amount over the remaining life. Excess depreciation may move from surplus to retained earnings.
• Disposal: net proceeds less carrying amount. Part-exchange value is the proceeds.
• Notes: bases, methods, lives, opening and closing gross amounts and accumulated depreciation, reconciliation.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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